Standard & Poor's has placed AA rated Taiwan Power Company (Taipower, 台電) on its credit watch list in response to the possibility that Taipower may be forced to scrap its Fourth Nuclear Plant project. Taipower is already in a tenuous financial situation.
S&P said that, "Cancellation of the fourth nuclear power plant would cause losses of about NT$90 billion for Taipower, putting significant pressure on the company's profitability."
No clear details of an alternative plan to meet Taiwan's power requirements had yet been announced, S&P said, but "given the potential environmental concerns and public protests that any alternative is likely to cause, the feasibility of bridging the supply gap is uncertain."
Taipower would likely have to swallow losses amounting to NT$48 billion in funds already spent, and NT$42 billion in compensation, S&P said, adding that "large contingent liabilities could emerge from potential lawsuits" from vendors already contracted to build and outfit the plant.
"The compensation costs in particular may require the company to borrow extensively, raising its debt leverage to an estimated 47 percent, compared with its current level of 43.5 percent," S&P said. Taipower's AA rating means that the company has a strong capacity to meet financial obligations.
S&P's ratings adjustment comes only days after Minister of Economic Affairs (經濟部) Lin Hsin-yi (林信義) said that if the nuclear plant is cancelled domestic electricity prices may have to be raised over five years to help Taipower cover massive losses from the cancelled project.
S&P said that its decision had also been motivated out of concern over the deterioration of Taipower's financial performance.
"While Taipower's operations still reflect its strong franchise ... the company's net income decreased 41 percent to NT$19.2 billion at June 30, 2000 from NT$32.5 billion as of June 30, 1999, as a result of extraordinary losses related to the [921] earthquake, a blackout in July 1999, and the rising cost of fuel," S&P said. About 60 percent of the drop in net income can be attributed to damage caused by the earthquake, the report said.
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